-Board of Directors proposes a dividend of EUR 0.31 per share (EUR 0.26 in 2001)

Key indicators

IV/02

IV/01

2002

2001

Net sales, EUR million

3,290

2,536

11,148

10,410

Operating profit, EUR million

391

171

1,289

914

Profit before taxes, EUR million

318

119

1,008

702

Earnings per share, EUR

0.22

0.08

0.79

0.57

Equity per share, EUR

6.97

6.49

Capital employed (at end of period), EUR million

13,765

11,032

Interest-bearing net debt (at end of period), EUR million

5,846

3,674

Investments, EUR million

4,381

713

Net cash from operating activities, EUR million

1,351

1,145

Cash flow before financing activities, EUR million

-27

844

Return on capital employed, %

11.1

8.7

Return on shareholders’ equity, %

10.5

8.3

Gearing, %

80

54

Number of employees (at end of period)

13,670

13,425

Average number of employees

14,053

14,803

During the first half of 2002, Fortum implemented its strategic agenda through major restructuring. Key acquisitions as well as several major divestments in non-core areas were concluded in this period. The single most important transaction was the acquisition in February of the remaining 50% of the former Birka Energi AB, renamed Fortum Power and Heat AB, which strengthened Fortum’s market position in the Nordic area. The process to combine the two power and heat businesses started immediately and the new pan-Nordic organisation became effective on 1 July.

During the second half of the year, Fortum focused on delivering on the targets set for the Birka Energi transaction. Progress has been good and the synergy benefits will exceed the set target of EUR 100 million. To further restructure the Group in line with the strategic agenda, the agreement on the divestiture of the Norwegian oil exploration and production assets was signed and the power plant engineering business was reorganised. The fourth quarter was characterised by cold weather and high market prices, and the performance of all major businesses was quite satisfying. Fortum continued to concentrate on cash flow and net debt was further decreased. By year-end, the company’s gearing stood at 80%. Taking into account the disposal of the Norwegian E&P assets the pro forma gearing was at the company’s target level, under 70%.

In January 2003, Fortum agreed with E.ON AG on a power asset swap. The transactions will substantially strengthen Fortum´s position in its focus area, the Nordic countries and the rest of the Baltic Rim.

Net sales and results

Group net sales stood at EUR 11,148 million (EUR 10,410 million in 2001). The acquisition of the former Birka Energi coupled with higher market prices pushed up the net sales of the Group’s power and heat businesses. The average price of crude oil was slightly up on the previous year, and the net sales of the Group’s oil businesses were at the same level as a year earlier. Towards the end of the year, prices of both oil and electricity increased markedly.

Net sales by segment

EUR million

2002

2001

Power, Heat and Gas

2,898

2,227

Electricity Distribution

640

473

Fortum Energy Solutions

664

603

Oil Refining and Marketing

7,195

7,223

Oil and Gas Upstream

391

408

Other operations

64

95

Internal invoicing

-704

-619

Group

11,148

10,410

Group operating profit totalled EUR 1,289 (914) million. The operating profit excluding non-recurring items, EUR 974 (890) million, improved by EUR 84 million on the yearly basis. During the fourth quarter, the improvement in 2002 was EUR 193 million on the corresponding period in 2001. The total amount of non-recurring items was EUR 315 (24) million.

Total electricity and heat sales volumes rose but the comparable volumes were down on the previous year mainly due to lower demand for industrial electricity and the exceptionally warm weather conditions during the first three quarters of the year. However, during the last quarter, the electricity volumes rose and there was a significant improvement in the results for the Power, Heat and Gas segment.

The comparable volumes of electricity transmitted in local distribution networks increased and the results for Electricity Distribution were clearly up on the previous year.

The results for Fortum Energy Solutions improved significantly on the previous year.

A restructuring charge of EUR 20 million was included in the fourth quarter results relating to the Birka Energi acquisition.

Lower international refining margins affected the results of Oil Refining and Marketing, but the decrease was offset by inventory gains of EUR 57 (-79) million. Deliveries of petroleum products refined by Fortum increased and the performance of the oil retail business improved compared to the corresponding figures in 2001. Shipping’s performance was depressed by low freight rates, which, however, started to increase sharply towards the end of the year. The MTBE plant in Canada was closed for conversion to iso-octane for three months, which had a substantial negative effect on the results of the gasoline component business.

Owing to increased production volumes in Norway and the gains from the sale of the Omani oil production interests, the results of Oil and Gas Upstream were somewhat up on the previous year despite lower market prices for gas and the divestiture of the Omani assets.

Operating profit by segment

EUR mill.

2002

2001

Power, Heat and Gas

560

367

Electricity Distribution

279

135

Fortum Energy Solutions

37

13

Oil Refining and Marketing

259

242

Oil and Gas Upstream

213

196

Other operations

-64

-40

Eliminations

5

1

Group

1,289

914

Profit before taxes was EUR 1,008 (702) million.

The Group´s net financial expenses were EUR 281 (212) million.

Minority interests accounted for EUR 73 (83) million of the results for the period. These minority interests were mainly attributable to the preference shares issued by Fortum Capital Ltd in 2000 and to Fortum Värme Holding, in which the City of Stockholm has a 50% economic interest.

Taxes for the period totalled EUR 269 (160) million. A tax charge of EUR 70 million incurred in the fourth quarter due to the divestiture of the Norwegian exploration and production assets.

Net profit for the period was EUR 666 (459) million. Earnings per share were EUR 0.79 (0.57). Return on capital employed was 11.1% (8.7%) and return on shareholders´ equity was 10.5% (8.3%).

As from 1 March 2002, the former Birka Energi has been 100% consolidated into Fortum’s figures. Until then, it had been consolidated using the proportionate method on the basis of 50% ownership.

Segment reviews

Power, Heat and Gas

Fortum is the second largest power company in the Nordic countries as well as the leading district heat producer in the region. Fortum owns and manages power and heating plants and has stakes in power and heating plants. Fortum sells electricity and heat generated by these facilities on the Nordic market. Fortum is also active in the gas sector.

EUR million

IV/02

IV/01

2002

2001

Net sales

979

645

2,898

2,227

- electricity sales

566

318

1,588

1,269

- heat sales

223

141

649

464

- other sales

190

186

661

494

Operating profit

241

114

560

367

- excluding non-recurring items

245

98

469

305

Net assets

8,642

5,873

Return on net assets, %

6.9

6.3

Electricity market prices were low during the first eight months of the year but increased sharply towards the end of the year. The full-year average price of electricity on the Nordic power exchange (Nord Pool) was EUR 26.9 (23.1 in 2001) per megawatt-hour (MWh), about 16% higher than in 2001. The rise in the market price of electricity also led to increases in the electricity retail price. Electricity consumption in the Nordic countries decreased by 1.8% to 386 TWh. In Finland, there was an increase in electricity consumption of approximately 2.6% while in Sweden, there was a 1.4% decrease.

Fortum´s electricity generating capacity in the Nordic countries was 11,091 (9,149) MW at the end of the year, while its total capacity was 11,347 (10,223) MW. In the Nordic countries Fortum generated 46.5 (41.0) TWh of electricity, or 12% (11%) of the electricity generated in this market. Hydropower accounted for 18.1 (17.0) TWh, or 39% (41%), and nuclear power some 22.0 (18.7) TWh, or 47% (46%), of Fortum’s own power generation, while the share of thermal power was 14% (13%).

Fortum’s sales of heat in the Nordic countries were 18.1 (15.6) TWh.

Electricity sales by area

TWh

IV/02

IV/01

2002*)

2001*)

Sweden

8.4

5.1

28.0

19.4

Finland

8.0

6.9

26.2

27.6

Other countries

0.5

2.2

4.8

6.7

Total

16.9

14.2

59.0

53.7

Heat sales by area

TWh

IV/02

IV/01

2002*)

2001*)

Sweden

3.6

1.6

8.2

4.7

Finland

2.7

3.1

9.8

10.9

Other countries

0.7

0.5

2.4

1.7

Total

7.0

5.2

20.4

17.3

*) includes 100% of Birka Energi’s figures as from March 2002, 50% prior to this

During the period from March to December the effect of Birka Energi’s change of ownership on electricity sales and heat volumes was 9.6 TWh and 3.5 TWh respectively.

Electricity distribution

Based on the number of customers, Fortum is the biggest actor in the Nordic distribution market. In Sweden, Finland and Estonia, Fortum owns and operates distribution and regional networks and distributes electricity to a total of 1.3 million customers. Fortum’s market share of electricity distribution is 15% in Finland and 20% in Sweden.

EUR million

IV/02

IV/01

2002

2001

Net sales

185

135

640

473

- distribution network transmission

149

105

526

376

- regional network transmission

24

13

80

54

- other sales

12

17

34

43

Operating profit

60

30

279

135

- excluding non-recurring items

59

27

187

120

Net assets

3,200

2,113

Return on net assets, %

9.3

6.2

The integration of the distribution operations of Swedish Birka Energi and Finnish Uudenmaan Sähköverkko was completed in 2002. In Sweden, the first steps were taken towards the creation of a unified price structure.

*) includes 100% of Birka Energi’s figures as from March 2002, 50% prior to this

The Birka Energi acquisition accounts for a 6.4 TWh increase in the volumes transmitted via the distribution networks.

Number of electricity distribution customers by area

2002

2001

Sweden*)

890,000

450,000

Finland**)

390,000

280,000

Other countries

20,000

180,000

Total

1,300,00

910,000

*) includes 100% of Birka Energi’s figures in 2002, 50% in 2001

**) acquisition of Uudenmaan Sähköverkko Oy in May 2002

Fortum Energy Solutions (Fortum Service as of 1 January 2003)

Fortum Service’s core business is operation and maintenance services for power plants and medium-sized industrial customers. The unit also specialises in combined heat and power technology (CHP) and energy consulting.

EUR million

IV/02

IV/01

2002

2001

Net sales

214

87

664

603

Operating profit

19

5

37

13

- excluding non-recurring items

2

0

11

-8

Net assets

96

236

Return on net assets, %

19.7

5.5

During the year, reorganisation of the unit continued. The restructuring of the power plant engineering business was completed and the shares of Fortum Engineering were sold in January 2003 to Enprima, a new company partly owned by Fortum.

Following the restructuring of the power plant engineering business, the name of the unit was changed to Fortum Service.

The maintenance function expanded its operations to a new customer segment, the chemical industry. Several new maintenance and refurbishment contracts in power plants as well as substation maintenance contracts were secured both in Finland and in Sweden.

Oil Refining and Marketing

Fortum is the biggest refiner in the Nordic countries with a total capacity of some 14 million tonnes per year. Fortum is one of the two biggest suppliers of petroleum products in the Nordic wholesale market. It owns two oil refineries in Finland and a network of service stations and other retail outlets in Finland and the other countries in the Baltic Rim. Fortum also owns and charters tankers and owns oil storage facilities.

EUR million

IV/02

IV/01

2002

2001

Net sales

2,002

1,636

7,195

7,223

Operating profit

38

15

259

242

- excluding non-recurring items

44

77

211

317

Net assets

1,514

1,688

Return on net assets, %

16.3

14.3

The international refining margin in north-western Europe (Brent Complex) was considerably lower than in 2001. The average refining margin for the year was USD 1.0 /bbl (USD 1.9/bbl in 2001). Fortum’s premium margin remained strong at about USD 2.0/bbl above the international reference margin.

The price of crude oil fluctuated between USD 20/bbl at the beginning of the year and USD 31/bbl at the end of the year. As a result, inventory gains were EUR 57 (-79) million.

In March 2002, a new unit for producing sulphur-free gasoline at the Naantali refinery was commissioned. As a result of the investments made in 2001 and 2002, Fortum’s refineries are now fully converted to production of sulphur-free traffic fuels.

In August, Fortum started production of ethanol-based gasoline at the Porvoo refinery.

The MTBE production plant in Edmonton, Canada, in which Fortum has a 50% holding, was converted into an iso-octane facility. The plant is the first in the world to begin production of iso-octane after conversion. The first deliveries took place in November. All of the iso-octane production at the plant is sold to the Californian market.

The recession in the shipping freight market started in late 2001 and continued into 2002. However, towards the end of the year, there was a significant increase in the freight volumes carried by the safer double-hulled vessels. This trend had a positive impact on Fortum’s shipping business.

Fortum’s share of the wholesale market for petroleum products in Finland was about 75% (75% in 2001) or 8.0 (7.8) million tonnes, and its share of the retail market was about 39% (40%) or 3.9 (3.8) million tonnes.

Exports from Finland of petroleum products refined by Fortum totalled 5.2 (4.9) million tonnes. Of this, 2.8 million tonnes was motor gasoline and 1.9 million tonnes diesel fuel. Half of the motor gasoline was exported to the European market. Of this, 90% was low-sulphur (sulphur content below 50 ppm) or sulphur-free (sulphur content below 10 ppm). The main markets for sulphur-free gasoline were Germany, the USA and Canada. All diesel exports were low-sulphur or sulphur-free. The main markets for diesel fuel were Sweden, the Netherlands and Germany.

Deliveries of petroleum products refined by Fortum, by product group

1,000 t

2002

2001

Gasoline

4,595

3,823

Diesel

3,619

3,310

Aviation fuel

586

455

Light fuel oil

1,503

1,713

Heavy fuel oil

1,233

1,201

Other

1,504

1,641

Total

13,040

12,143

Deliveries of petroleum products refined by Fortum, by area

1,000 t

2002

2001

Finland

7,845

7,484

Other Nordic countries

1,982

1,991

Baltic countries and Russia

41

45

USA and Canada

1,276

682

Other countries

1,896

1,941

Total

13,040

12,143

Oil and Gas Upstream

Oil and gas exploration and production activities in Fortum were subject to major restructuring. In 2002, production operations were restricted exclusively to Norway. Current activities concentrate on north-western Russia.

EUR million

IV/02

IV/01

2002

2001

Net sales

127

81

391

408

Operating profit

56

33

213

196

- excluding non-recurring items

69

33

159

196

Net assets

934

1,271

Return on net assets, %

19.4

15.4

The average price of North Sea light Brent crude oil was USD 25.0/bbl (USD 24.4/bbl). The average price of crude oil sold by Fortum was USD 25.5/bbl (23.7/bbl), and the corresponding equivalent price of gas was USD 17.6/bbl (19.0/bbl).

In 2002, Fortum divested its oil field assets in Oman and signed an agreement to divest its assets in Norway. The production in Oman is not included in the segment’s figures for 2002. Investments in Russian oil and gas fields continued according to plan.

In 2002, Fortum’s oil and gas production amounted to 40,800 (40,200) boepd. This was equivalent to an annual output of about 2.0 (2.0) million oil-equivalent tonnes. Natural gas accounted for approximately 28% (18%) of production. The increased natural gas production in Norway offset the fall in output resulting from the divestment in Oman.

The start of oil exploration and production in the South Shapkino oil field in Russia is scheduled for late 2003. The reserves of the South Shapkino oil field, which is 50% owned by Fortum and the Russian company Lukoil, have been estimated at 164 million barrels (over 20 million tonnes).

Fortum Markets

The Fortum Markets unit focuses on the retail sale of electricity and oil products as well as related services. The unit has some 1.3 million business and private customers. In 2002, the emphasis was on improving the quality of service through the development of a cost-effective, customer-oriented approach. The provision of competitive products and services to improve customer satisfaction will continue to be a priority.

The figures for Fortum Markets are included in the figures for Power, Heat and Gas and for Oil Refining and Marketing. The result of retail sales of electricity was slightly negative.

Investments

Investments in fixed assets during the year totalled EUR 4.381 (713) million. The increase was due to the acquisition of 50% of the Swedish energy company Birka Energi’s shares. The deal was completed in February 2002. In May, Fortum consolidated its Nordic position further by acquiring the remaining 50% share in the Finnish Elnova Group with its electricity retail sales and distribution businesses.

The modernisation and expansion of a CHP-plant in the Stockholm area started in the autumn. The investment will create additional capacity and shift the emphasis of the fuel mix towards recycled fuels (mainly municipal waste). Annually, the new boiler will replace 70,000 tonnes of fuel oil with recycled fuel.

Shares were acquired in some small heating companies in the Baltic Rim area.

In March, a new unit for producing sulphur-free gasoline at the Naantali refinery was commissioned. At the Porvoo refinery, the first pilot plant for liquefied wood fuel in the Nordic countries began production in May and production of ethanol-based 98-octane gasoline was started in August. Production of the flow-improving additive (FIA) began during the first half of the year.

The MTBE production plant in Edmonton, Canada, in which Fortum has a 50% holding, was converted into an iso-octane facility. Production was gradually phased in during the last quarter of the year.

The tanker fleet renewal continued, new Neste stations were opened in the Baltic Rim countries and in Russia. The investment to start up oil production in Russia continued according to plan.

Divestments

In line with its strategy, Fortum sold its shares in Fortum Energie GmbH and the Afferde combined heat and power plant in Germany, the Regional Power Generators Limited in the UK, the Thai subsidiary Laem Chabang Power Company Limited, as well as its shareholding in Espoon Sähkö Oyj in Finland.

The restructuring of the power plant engineering business was completed in January 2003.

In February 2002, Fortum divested its interests in the oil fields in Oman. The deal was completed in June. The Norwegian oil and gas reserves were sold in November. The parties have received all the necessary approvals and the transaction will be finalised in early March 2003.

In early 2002, Fortum’s net debt increased substantially following the acquisition of Birka Energi. During the year, however, net debt was reduced considerably. Year-end net debt stood at EUR 5,846 million (EUR 3,674 million in 2001) and gearing was 80% (54%). The Group’s net financing expenses for 2002 were EUR 281 (212) million.

In October 2002, Fortum applied to two leading international credit rating agencies for corporate long-term credit ratings. Standard & Poor’s assigned Fortum Oyj a BBB+ (stable) rating while Moody’s rated it Baa2 (positive). At the same time, they confirmed the long-term credit rating of Fortum Power and Heat AB (formerly Birka Energi AB) as BBB+ and Baa1 (stable).

Fortum did not conclude any new significant long-term financing arrangements in 2002. A large proportion of the EUR 1.2 billion loan taken out in February 2002 to finance the Birka deal was paid off during the year using proceeds from the disposal of assets and in January 2003, the remaining part of the loan was paid off in full.

Group liquidity remained good. Year-end cash and marketable securities totalled EUR 592 million. In addition, the Group had a total of approximately EUR 1,772 million in undrawn credit facilities. Of this, approximately EUR 700 million short-term facilities were signed in December. Also in December, Fortum Oyj concluded agreements for a commercial paper programme worth SEK 5,000 million, which, together with the Finnish programme worth EUR 500 million, will cover the Group’s short-term financing needs.

The average interest rate of loans after hedging was 5.2% at year end.

Shares and share capital

A total of 148,380 shares relating to Fortum Corporation’s 1999 bond loan with warrants issued to employees were subscribed for and entered into the trade register between 17 May and 31 December 2002. A total of 3,000 shares relating to Fortum Corporation’s 1999 share option programme for key employees were subscribed for and entered into the trade register between 1 October and 31 December 2002.

After the increase, Fortum Corporation´s share capital is EUR 2,875,583,847 and the total number of shares is 845,759,955. Fortum Corporation’s share capital increased by a total of EUR 514,692.

A total of 251.2 million shares were traded for a total of EUR 1,475million during 2002. The highest quotation was EUR 6.52 (3 May), the lowest EUR 4.75 (2 January), and the middle-market quotation EUR 5.87. The closing quotation on 30 December was EUR 6.25.

Personnel

In 2002, the Fortum Group employed an average of 14,053 (14,803) people. The divestment of Transmission Engineering in 2001 together with the major part of the German power businesses in 2002 accounted for most of the decrease. By contrast, the acquisition of the remaining 50% of Birka Energi increased the number of personnel by 1,758. At the end of the year, the number of employees totalled 13,670 (13,425). The number of employees in the parent companyFortum Corporation at year end totalled 310 (340) people.

Group management

Mr Christian Lundberg was appointed to head Fortum Markets and member of the Corporate Executive Committee as of 1 February 2003.

Events after the period under review

On 31 January 2003, Fortum and E.ON AG agreed on an asset swap with an aggregate value of EUR 770 million. The value of assets to be acquired by Fortum is EUR 460 million. The value of assets to be sold is EUR 310 million, leading to a balancing consideration of EUR 150 million. The transactions will substantially strengthen Fortum´s position in its focus area, the Nordic countries and the rest of the Baltic Rim.

Fortum is to acquire 21.4% of the shares in Hafslund ASA, the second biggest electricity company in Norway with 600,000 electricity sales customers, 550,000 distribution customers and about 3 TWh of hydropower production. In addition, Fortum is to acquire all the shares in Ostfold Energi Nett AS, Ostfold Energi Kraftsalg AS and Ostfold Energi Entreprenor AS with a total of 95,000 electricity sales and distribution customers, and 49% of Fredrikstads Energi AS with 80,000 customers. The Norwegian acquisitions also include some other minority holdings.

Fortum will acquire a further 9.5% of the shares in AO Lenenergo, the largest utility company in north-western Russia with some 1.3 million electricity customers and a production capacity of 14 TWh of electricity and 26.3 TWh of heat. As a result, Fortum´s share in Lenenergo will rise to 15.9%.

As part of the deal, Fortum will sell its power plants in Burghausen, Germany and Edenderry, Ireland to E.ON. E.ON will also acquire the shares and business of an electricity distribution company in southern Sweden with some 43,000 customers.

Outlook

The key market drivers influencing Fortum´s performance are the market price of electricity and the international oil refining margin. Other important market drivers are the price of crude oil, the exchange rates of the US dollar and the Swedish krona.

According to general market information, electricity consumption in the Nordic countries is predicted to increase by about 1–2% each year over the next couple of years. During 2002, the average spot price for electricity was EUR 26.9 per megawatt-hour on the Nordic electricity market, or 16% higher than the corresponding figure in 2001. In January 2003, the spot price has been averaging EUR 71.7 per megawatt-hour. At the end of January, the hydro reservoirs in the Nordic countries were approximately 25 TWh below average. The 31 January electricity forwards indicated a return to more moderate price levels.

The synergy benefits generated by the creation of a pan-Nordic power and heat business following the acquisition of the remaining 50% of the former Birka Energi will exceed the target of EUR 100 million a year as of 2004.

The international refining margin in north-western Europe (Brent Complex) was considerably lower than in 2001 and averaged USD 1.0/bbl (USD 1.9/bbl in 2001). During the fourth quarter, it averaged USD 1.9/bbl (USD 0.9/bbl). In January 2003, the international refining margin averaged USD 1.6/bbl. For several years, the international Brent Complex refining margin has averaged USD 1.5 – 2.0/bbl. Management expects Fortum’s premium margin to remain at the strong levels of previous years. During 2003, the refining volumes are expected to be normal with no major maintenance shutdowns planned.

The average price for Brent crude oil was USD 25.0/bbl in 2002. In January 2003, the price has been averaging USD 31.3/bbl while the International Petroleum Exchange’s Brent futures for the remainder of 2003 were on average USD 28.4/bbl in January. The price of crude oil has an impact on the results of Oil Refining and Marketing through inventory gains and losses.

Due to the divestitures of the oil and gas production assets in Oman and Norway, there will be no own production in the first half of 2003. Preparations for the start of oil production in late 2003 at the South Shapkino oil field in north-western Russia is continuing as planned.

In 2002, the average euro exchange rate against the US dollar and the Swedish crona was 0.9419 and 9,1442 respectively. At the end of December, the exchange rates were 1.0487 and 9,1528 respectively.

The last few years were characterised by major restructuring. By February 2003, Fortum had agreed on transactions covering strategically important assets worth EUR 6.5 billion euros and divested non-core assets worth EUR 2.5 billion. Fortum will now focus on achieving the targets set, delivering a strong cash flow and controlling the balance sheet.

Dividend distribution proposal

The Group’s non-restricted equity and distributable equity as of 31 December 2002 amounted to EUR 2,810 million. The parent company’s distributable equity as of 31 December 2002 stood at EUR 900 million.

The Board of Directors proposes to the Annual General Meeting that Fortum Corporation should pay a dividend of EUR 0.31 per share for 2002, totalling EUR 262.2 million. The Annual General Meeting will be held on 27 March at 3.00 pm at Finland Hall in Helsinki.